UBS Gets Taken to the Laundry, Yet Tier 1 Capital Stays High

United Bank of Switzerland (NYSE:UBS) has indicated negative bottom line growth for its third quarter due to a loss of $2 billion incurred in unauthorized trading. An unidentified employee of the bank is now being tarred as a rogue trader who caused the loss. However, the loss is a clear failure of UBS’s risk management system.

The Bank’s tier 1 capital is currently at 18.1 % which is higher than its counterparts in the US and Germany (NYSE:EWG). Tier 1 capital is the ratio of a bank’s core equity capital to its risk weighted assets; it is required to be more than 15 % according to Basel II norms so depositors are protected from unexpected losses. Don’t Miss: JPMorgan CEO Jamie Dimon Calls Basel III Regulations ‘Blatantly Anti-American’.

UBS shares are currently trading at $11.39, down 10.25%. The stock has been falling continuously over the last 3 months and lost more than one third of its value as the bank is posting operating margins below the industry average.

Looks like UBS should’ve fired a few traders after 70,000 planned staff cuts have been announced at European banks (NYSE:KBE) this year by top firms including UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), Royal Bank of Scotland (NYSE:RBS) and Lloyd’s (NYSE:LYG).